Prepare Yourself for a Euro Short Again

The recent news events on the Euro have hit the currency hard throughout the month of January. The European Central Bank’s (ECB) decision to implement Quantitative Easing (QE) and to keep interest rates at near 0 made the Euro sink quickly.

The Euro however managed to make a decent rally during the last 1 or 2 weeks of trading. Here is a summary of a few currency pairs:

  • The EURUSD climbed from its low at 1.11 to 1.1530;
  • The EURAUD bounced from its recent bottom at 1.3960 up to 1.49;
  • The EURJPY from 130 to 135.30;
  • The EURNZD from 1.48 to 1.58.

More bounce was visible against the Aussie and Kiwi as commodity weakness helped those pairs rise further.

READY TO SHORT

In my opinion the recent rebound rally is an opportunity for shorting the Euro. The fundamentals and technicals are all aligned and hence a Euro short makes sense. But it is important to ensure that the entry is well timed. Probably every person and their dog are already in Euro shorts and this can cause price to build a longer consolidation before making another crash.

The fundamentals for the Euro zone are pretty straightforward: every month more QE is being completed and the economy is struggling to recover. An unknown known could occur when a deal is made or fails between Greece and the ECB plus the Euro zone members (read more here).

TECHNICALS EURNZD

The EURNZD had an impressive wick on top of the daily candle followed by a clear bearish bar on Wednesday. The bullish zigzag correction seems to be complete and a downtrend continuation very likely when analyzing the market structure.

5- 2- 2015 eurnzd daily

An interesting trigger for the EURNZD short is waiting for a bearish weekly candle. When looking at the weekly chart it becomes visible that the 2 last weeks were bullish weekly candles so a bearish candle indicates the reversal.

If weekly candle closes similar to the screenshot, then it is an ideal candidate for such a reversal setup: a bearish candle with a wick on top and a close in the body of the previous weekly candle. I am interested in a short position upon the retracement to the 38.2 or 50% Fibonacci of the weekly bearish candle.

5- 2- 2015 eurnzd weekly

TECHNICALS OTHER EURO PAIRS

The same holds true for the EURAUD weekly chart: it will be interesting to see whether the weekly candle signals rejection and a reversal at the end of this week. The EURAUD has a very similar pattern as the EURNZD with strongly bearish weekly candles which are followed by 2 bullish candles. If the weekly candle shows a pinbar then I will be looking for a retracement to the 38.2 or 50% Fib and ready to short the EURAUD next week.

5- 2- 2015 euraud weekly

The EURUSD and the EURJPY are no exceptions to the potential Euro weakness either. Especially the EURUSD downtrend is well established; whereas the EURJPY bearish momentum is relatively new. Both pairs could be ready for shorts as well when the weekly candle closes with bearish reversal signals, similar to the signals and setup shown for the EURAUD and EURNZD.

5- 2- 2015 eurusd

For the EURUSD and EURJPY, the bullish price action this week could only have been a retracement of last month’s bearish candle.

5- 2- 2015 eurjpy

Are you interested in shorting the Euro?

Or do you think the price action will consolidate first before falling?

Or do you see the Euro as bullish?

Let us know down below!

Happy Hunting!

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  • Chris

    Hi Bim, yes the whole structure is starting to look like a big bear flag indeed 🙂 lets see if and when it breaks. Thanks for the feedback

  • Bim

    EURJPY hourly seems drawing the bearish flag to go south more ? I hope so 🙂

  • Chris

    Thanks for the comment Manish! Yes agree, just a sturdy retracement before another fall…

  • Manish Patel

    I think euro is eating some pips for healthy down trand..